As 2025 began, most Wall Street analysts predicted further gains for the S&P 500 after underestimating its 23% surge in 2024. However, Peter Berezin, Chief Global Strategist at BCA Research, stood apart with a cautious outlook. While many projected the index to reach 6,500 or higher, Berezin set a far lower target of 4,450, warning that a looming recession could make stocks a risky bet.

In a conversation with MarketWatch, Berezin outlined a worst-case scenario where the S&P 500 could fall to 4,200. This projection assumes two key factors: a decline in forward earnings multiples from 21 to 17 and a 10% drop in earnings estimates. Despite forecasts of 10% earnings growth over the next year, Berezin believes that a recession could keep earnings stagnant.

“I think a recession will be the main driver,” he said. “Since earnings and the economy are closely linked, it’s difficult to see one declining without the other.”

Berezin estimates a 50% chance that the U.S. is already in a recession, with March possibly marking its official start. His firm increased recession probabilities post-election, citing concerns over trade policy disruptions. Unlike many on Wall Street who viewed tariffs as a negotiation tactic, Berezin believes former President Trump is committed to protectionist policies to address the budget deficit.

“I didn’t expect tariffs on Canada and Mexico to reach 25% so quickly. Things have deteriorated faster than anticipated,” he noted.

Despite turning bearish in mid-2024—admittedly too early—Berezin insists he is not a permanent pessimist, having previously dismissed recession risks in 2022 and 2023.

Investment Strategy: Defensive Assets Over Stocks

For now, Berezin advises stepping away from equities. “If you must invest, shift toward defensive sectors like consumer staples, healthcare, and utilities,” he recommended. He warns against struggling sectors such as tech, consumer discretionary, industrials, materials, financials, and high-yield credit, along with crypto.

Instead, he suggests holding more bonds, cash, and gold. Investors comfortable with currency trades should consider safe-haven options like the Japanese yen and Swiss franc. While these assets may not generate large profits, they can help protect capital.

For long-term investors, Berezin acknowledges the challenge of positioning in this market. They might explore undervalued international and value stocks, though these often struggle during recessions. Those unwilling to exit equities should consider hedging through put options to safeguard their portfolios.

A major shift in Berezin’s outlook would require Trump to abandon his aggressive tariff policies—an unlikely scenario unless stocks experience a significant downturn.